October 30, 2005

October 30, 2005 | WebMemo on Trade, Economic Freedom

Time to Repeal the Byrd Amendment

In its latest budget reconciliation package, the House Ways and Means Committee voted to cut spending by repealing the Continued Dumping and Subsidies Offset Act (CDSOA) of 2000, infamously known as the Byrd Amendment. The Byrd Amendment mandates the direct payment of antidumping duties and countervailing duties to U.S. companies that have filed or publicly supported petitions for protection against foreign competitors. The law has been found in violation of WTO trade remedy rules and imposes costly distortions on the U.S. economy. Since CDSOA was implemented, the President and proponents of free trade in Congress have tried several times to repeal it, each time failing to overcome protectionist sentiment in Congress

 

Now, however, Congress may have a viable opportunity to overturn this epitome of bad trade policy. The House Ways and Means Committee has approved repeal of the Byrd Amendment as part of its budget reconciliation plan. Congress should strive to keep this important action in the final agreement and eliminate the Byrd Amendment once and for all.

 

The Byrd Amendment Harms the U.S. Economy

Historically, the U.S. has aggressively applied antidumping duties and countervailing duties against foreign firms and countries that engage in allegedly unfair trade practices. Antidumping duties can be imposed on imports sold in the U.S. market at prices below those in producers' home markets or below the foreign firms' costs of production. Countervailing duties can also be imposed on imported products that receive government subsidies. In both cases, the key factor is that the import causes material injury to the competing domestic industry.

 

While trade remedies afford a layer of protection for firms facing stiff foreign competition and bring the government some additional revenue, households and businesses are forced to pay higher prices on affected imports. Moreover, consumers may be denied the opportunity to purchase certain imports at all if duties are high enough to prohibit trade. This tax on America's households and import-consuming firms reduces economic activity and lowers living standards. Furthermore, as they reduce competition, trade remedies diminish incentives to use resources efficiently and innovate.

 

The Byrd Amendment raises the cost of trade remedies even more. Before CDSOA, tariff revenue collected from "dumped" or subsidized imports went directly to the Department of the Treasury's general revenue fund. Under CDSOA, however, the proceeds from those tariffs no longer flow into government coffers but are paid to firms that filed or publicly supported requests for protection against foreign producers. Consequently, companies eligible for payouts are subsidized against both foreign competitors and unlucky U.S. firms that are able to effectively compete against foreign producers or are unable to meet eligibility requirements for government handouts. The Byrd Amendment rewards inefficient or rent-seeking firms at the expense of companies that use resources more efficiently, are able to better face the rigor of competition, or are unable to secure eligibility for subsidies.

 

The subsidies paid to U.S. companies under CDSOA have been substantial. The Government Accountability Office (GAO) reports that between 2001 and 2004, $1 billion was transferred to 770 firms that were allegedly harmed by unfair trade practices.[1] The Congressional Budget Office estimates that $3.85 billion in revenues will be collected and distributed to firms between 2005 and 2014.[2]

 

All this money goes to just a few. Roughly 50 percent of the proceeds from CDSOA have gone to just five companies.[3] Moreover, the subsidies are concentrated among just a few industries. Two-thirds of CDSOA payments flow to only 3 of the 77 industries eligible for payments.[4]

 

According to GAO, this concentration of payments was brought about by poor implementation of CDSOA and foreign countries' lawsuits against the subsidies. GAO reports that of $4.7 billion available for distribution to eligible firms in 2004, only $285 million was actually distributed.[5] Despite the strong possibility of not receiving a payoff, domestic companies still face strong incentives to qualify for Bird Amendment subsidies, according to the CBO report.[6]

 

The Byrd Amendment Hurts U.S. Exporters

Government waste and corporate welfare aside, it is actually a good thing that CDSOA payments have been less than they might have been. After 11 countries filed complaints, the World Trade Organization (WTO) ruled in January 2003 that the Byrd Amendment was in violation of U.S. trade obligations. While the U.S. promised to comply with the WTO ruling and eliminate the subsidies by December 2003, the Byrd Amendment remains a part of U.S. trade law. Consequently, eight of the complaining countries have been awarded the right to impose retaliatory duties on U.S. exports equal to 72 percent of the actual subsidy payments on each country's exports each year. Thus, the higher CDSOA payments to select U.S. firms, the more America's trade partners can retaliate against U.S. goods, and the more U.S. consumers suffer.

 

Based on 2004 alone, these retaliatory duties could amount up to $0.3 million for Brazil, $11.2 million for Canada, $0.6 million for Chile, $27.8 million for the European Union, $1.4 million for India, $52.1 million for Japan, $20 million for Korea, and $20.9 million for Mexico. Canada, the European Union, Japan, and Mexico have already imposed these retaliatory tariffs. The remaining four could do so at any time. Meanwhile, Australia, Indonesia, and Thailand have offered the U.S. additional time to comply with WTO rules but have the same opportunity to impose tariffs on U.S. products if America continues to implement the Byrd Amendment.

 

Conclusion

The Byrd Amendment reduces U.S. competitiveness, imposes unnecessary costs on households and import-consuming businesses, and undermines America's ability to innovate, grow, and prosper. At the same time, the United States' refusal to comply with the WTO's ruling on CDSOA and thereby abide by the same fair trade standards and rules that America demands of other countries is hypocritical and weakens U.S. influence in global free trade negotiations. By placing the Byrd Amendment on the chopping block in its federal budget reconciliation package, the House Ways and Means Committee took an important first step in eliminating this costly legislation. Congress should make every effort to ensure that the Byrd Amendment is repealed and that its detrimental influence on America's trade policy is ended.

Daniella Markheim is a Senior Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.




[1] GAO, "Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act," GAO-05-979, September, 2005 at /static/reportimages/DB71B19A50F7ABA03E71F652280AD6CD.pdf.

[2] Congressional Budget Office, "Economic Analysis of The Continued Dumping and Subsidy Offset Act of 2000", March 2004 at http://www.cbo.gov/showdoc.cfm?index=5130&sequence=0 .

[3] GAO, "Issues and Effects of Implementing the Continued Dumping and Subsidy Offset Act," GAO-05-979, September 2005, p. 4 at /static/reportimages/DB71B19A50F7ABA03E71F652280AD6CD.pdf.

[4]Ibid,

[5]Ibid, page 27.

[6] Congressional Budget Office, "Economic Analysis of The Continued Dumping and Subsidy Offset Act of 2000," March 2004 at http://www.cbo.gov/showdoc.cfm?index=5130&sequence=0.

About the Author

Daniella Markheim Jay Van Andel Senior Analyst in Trade Policy
Center for Trade and Economics (CTE)